Rookonomics v2.0

Rookonomics v2

Preface

This document is not official. Instead, it serves as a wishlist from the community to what they would desire for the revised tokenomics of Rook. Furthermore, These tokenomics will help build a “moat” around KD to prevent other devs from forking the code and siphoning users away from the protocol.

Rational

Rook has been a valueless governance token for over one year. It is only being used to incentivize the use of the protocol by rewarding users to trade. This in and of itself isn’t bad but there should be more depth to Rook than just as a reward for using KD products.

To expand on this idea, these tokenomics must also include some value capture as a detractor of actors within DeFi who might want to fork KD. This comes with a degree of risk to Rook holders but would also cement permanence for KD where it would otherwise be absent.

Tokenomics objectives

  • Create an unforkable state for KeeperDAO through Rook

  • Reward users who stake and give outsized rewards to users who lock for longer

  • Increase the Sybil resistance of our current governance model

  • Incentivize an increase in TVL through staked Rook

  • Produce a flywheel effect where an increase in staked Rook increases Rook demand

  • Make Rook useable as collateral

  • Make Rook a necessity for effective MEV capture

  • Give users product benefits for staking Rook

kRook, The Granular Details

Below will be outlined staked rook’s role within KeeperDAO and the wider defi ecosystem

Tokenomics

1. Rook Max Supply of 1 300 000

  • The minting the remainder of the rook and depositing it to the treasury while delegating the development of a responsible emission model to token holders using the minted Rook. This max-cap will remain definite unless voted against by holders. Token holders generally prefer a lower supply, the future proposal will have to be compelling.
  • Max supply target of 1 Million Rook. Having a target max supply lower than our current circulation supply means that rook will remain deflationary for the foreseeable future. This also gives us a target for the burns and burns can then be reevaluated once reached.

2. Adaptive Emissions to Market Conditions

  • As it stands, our current Rook emissions for all KD products are done without considering market conditions. This is directly at the disadvantage of KD because outsized rewards are being given in times of bullish price action while apy droughts are observed during bearish times. A solution to remedy this is to have a series of trailing emission cuts as the price of Rook increases. The purpose of these cuts would be to maintain token scarcity in times of price appreciation by limiting the flow of new tokens entering the market. The tokens that are not emitted during times of positive price action can then be held in a vault and subsequently emitted in times of negative price action to maintain competitive APY’s, incentivizing liquidity to stay.

Emission Properties

  • 25% cut in emissions for every 2x the token does within an ACT
  • 2x price must be held for 1 week for emission cut to be executed
  • 25% emissions boost every time price halves within an ACT
  • 1/2x price must be held for 1 week for emission cut to be executed
  • Boosted rewards must be vested until the end of the ACT
  • Price is determined using a Chainlink TWAP oracle for Rook

3. Governance mining

One overlooked aspect of DAO token emissions is the idea of “human capital”. Something deeply ingrained in the ethos of KeeperDAO is rewarding users who add value. In that light, having a section of emissions for each act allocated to rewarding users who contributed to the DAO seems natural. The value of these emissions should be high enough to attract top minds within the DeFi space. These emissions would be paid out at the end of each Act based on a list of candidates drafted by Sophons. In an effort to make these emissions sustainable, X% of all the rook bought back from buybacks during an Act will redistribute to these candidates.

Staked Rook Utility

Outline of the utility of staking rook for Users and Keepers. Institutional investors, team wallet Rook, CEX Rook, and treasury Rook are blacklisted from native staking rewards and have reduced voting power by a factor of 20.

Users

  • Voting power on KIPs
  • Revenue share

Keepers

  • Staked Rook dictates flash loan size
  • Staked Rook dictates flash loan whitelisting
  • Staked Rook partially impacts MEV lottery

kRook the moat KeeperDAO needs

The current iteration of KD has managed to retain an unforkable state through a lack of market interest, making a fork not lucrative enough to pursue and with ~400m in TVL being difficult to replicate.

Hiding vault

The value accrual of staking Rook relating to the Hiding vault is that when liquidations are imminent, Rook tokens from the staking pool are sold on the free market to cover the liquidation. Profits from JITU are then used to buy back the sold Rook and are redeposited in the staking pool. This liquidity backstop is similar to Aave’s Safety Module for onboarding risk to stakeholders to ensure that voters act in good faith to KD and make decisions that would not jeopardize its loan engine. On the other side of the coin, meeting a threshold of staked Rook could provide users with more competitive collateral ratios compared to Compound and Aave. These ratios could be governed by Rook holders to ensure proper Risk/Reward balance is found. Furthermore, if bad actors try to exploit the protocol using these adjusted collateral ratios their stake is culpable of being slashed and shared with other Rook stakers provable with a custom Chainlink oracle.

Rook collateralization

An alternative to this could be Rook collateralization that could be borrowed for JITU assets. The challenge there now becomes finding suitable parameters to take out loans on Rook without having a TWAP oracle. This highly increases potential attack vectors but also solves the value accrual problem. A conservative collateral ratio of 0.2 could be proposed where would need to provide 5$ in Rook to take out a loan on 1$ worth of assets. This in conjunction with having a threshold of staked rook at risk of getting slashed could make the cost of behaving like a bad actor higher than what there is to gain.

Hiding Game

The Hiding Game currently is neutral in the size of rewards received from users who chose to use it over other dex’s. While this is good in driving use over competitors, outsized rewards should be given to users exceeding a stake threshold similar to how CEX’s give platform benefits to users who hold a certain amount of their native coin. With that said, it is important to be mindful of the cobra effect when rewarding users. This occurs rarely but happens when the rook rewards outweigh the gas cost of the transaction and bad actors spam the HG with transactions to turn a profit. This is problematic for 2 reasons.

  • It increases gas cost on the ETH network, negating the effects of the Coordination Game
  • It takes rewards away from normal users diminishing KeeperDAO’s ability to provide meaningful rewards.

In an effort to rectify this, I propose that a limit be set on the number of transactions that can be rewarded for each wallet in a 24h period. These parameters could be modified by exceeding a staked Rook threshold.

Liquidity Pool

One of the biggest changes to KD that stand to be done is the obsolescence of our current LP. The current purpose for our LP is to cover unhealthy loans from the HV and to provide our keeper bot with flash loans. With the aforementioned use of Rook as collateral to cover loan positions, that need has been met. The more nebulous problem is finding a suitable source for flash loans. There are candidates that come to mind like Iron Bank, as outlined in the KIP draft about acquiring a large position in YFI. Alternatively, we could deepen our existing partnership with Maple Finance through the whitelisting of CG keepers to take out flash loans on the pooled tokens that are not being lent out. The benefit of this would be the liberation of ~60 million dollars worth of treasury assets ready to be utilized in novel ways by the DAO.

kRook, The Vote With a Voice

The current iteration of our governance model is lacking in both Sybil attack resistance and in gauging which objection votes have merit vs objections trying to slow down consensus. In developing a staking contract for KD I think assigning value to staking length is essential in discerning good actors from bad. I propose the implementation of a pool that has an act-wide lockup.

The benefit of staking for such a high duration is that rewards are focused on users who have a long time horizon for KeeperDAO. Furthermore, it minimizes potential sell pressure in the event of positive price action for those who forgo staking. For keepers, having an act-wide lockup creates a predictable Rook floor that they will have access to for the duration of the act. At the end of an act, users have 2 weeks to withdraw from the pool until locking resumes.

A voting structure upgrade can be issued from our current system to that of Governor Bravo currently used by Ribbon and Compound. This enables the addition of text tied to votes and offers more voting options than yes/no. Furthermore, Bravo offers modifiers to all governance parameters as we continue to experiment on our current apparent consensus model.

Updated KeeperDAO Revenue Structure

Currently, all of KD revenue is being used for token buybacks and burns. This model is both inefficient in regards to the use of capital and ineffective regarding its objection of helping increase token price. A holistic look at our current model would be ideal in finding a solution that;

  • Doesn’t impede KeeperDAO’s growth
  • Adequately rewards token holders
  • Allows for price appreciation of the token

With that in mind, I think an approach similar to Maslow’s hierarchy of needs should be considered in how we allocate revenue. With the top being the highest priority and the bottom the lowest.

At the beginning of an Act, a 70/20/10% of weekly revenue will be done until a predetermined threshold is met for the funding of KD during that Act. Once the salary of all team members has been secured, a revenue split could be split 70/30% between funds deposited into the treasury and revenue shared in the staking pool. After the second threshold is met, all revenue goes to Rook buybacks, 70% goes to stakers and 30% is directed at token burns. This ensures that Rook total supply remains deflationary while rewarding stakers for not providing sell pressure to the market.

Act wide pool (~3 months)

The purpose of this pool is to both give users with a long time horizon for KD an outsized return both concerning rev share and with voting power compared to short pool stakers. The reasoning behind an act-wide lockup period is that it ensures.

  • Rook floor for Keepers within the CG for the duration of an Act
  • Most KIPs published during an Act will pertain to said act. After reading the act roadmap, users can decide if they want to influence the KIP that direct the implementation of the goals of an act
  • Have a lockup period that deters bad actors from trying to slow consensus due to the lengthy lock-up

Properties

  1. X% of KeeperDAO revenue distributed to stakers
  2. X% of CRV bribes in their native forms distributed to stakers
  3. All Dark Node revenue deposited to stakers in their native forms
  4. Additional Emissions to make native staking the most attractive
  5. 1:1 ratio of Rook-kRook

Act-wide staking token usage

  • Single-sided staking on Visor/Popsicle and Bancor (X%)

The notion of allocating Rook to provide liquidity is to make it accessible to onboard new investors at the most attractive unit price possible. The % of rook allocated to bancor is dependent on pool space but the goal is to ensure that as much buy-side liquidity is available to future investors. With regards to Visor/Popsicle, a point of diminishing returns can be established based on advice provided by either team.

  • Bond with keepers (X%)

Having a large % of Rook bonded with keepers will enable them to take on larger flash loans and gain access to a larger breadth of flash loan sources

  • Ribbon Vault (X%)

Allocating a non-trivial amount of Rook to our own ribbon vault is important not only in the sense of diversifying our revenue sources but also creates an on-chain options market for the token where it would otherwise be absent.

  • CRV pool staking (X%)

Capturing the lion’s share of CRV emissions through native rook staking seems like the most natural thing to do. This increases influence over the CRV ecosystem while also providing liquidity to Rook

5 Likes

Hi Yung,

Thanks for sharing.

it serves as a wishlist from the community to what they would desire for the revised tokenomics of Roo

Absolutely. The core token economics haven’t even truly launched yet. We’ll truly kick them off with the Coordination Game. This even includes some things you mentioned here on the wishlist. Something that’s made this process difficult is the need to keep things under wrap for competitive advantage. The more early details we communicate, the more alpha we’re leaking to competitors and potential forks. For example, the HidingGame launch immediately inspired many other products in the space. Some competing, some complimentary. Guarding the CG design during it’s development process has been important this year, but the community has felt the big downside to us keeping things under wraps. Quiet discord & forums, great discussion topics being under-discussed, vague progress updates, etc.

We’re currently preparing the product and token econimics for launch. We will be releasing information very soon. Design docs, content, graphics, fine details, integration docs, etc. And we’ll be catering to community discussions. While we continue to prep the launch, cross the t’s and dot the i’s, we’ll be requesting feedback from everyone in the community. We appreciate the feedback you guys have been providing. And once you see the docs we release, we’re certain your feedback will evolve. And with the shrowd removed and the curtain raised, we’ll be in a safer position to directly engage in these conversations without feeling the need to guard alpha. Since launch will be imminent with a timer counting down.

Rook has been a valueless governance token for over one year

CG totally addresses this.

tokenomics must also include some value capture

CG addresses this.

Create an unforkable state for KeeperDAO through Rook

Yep, this is big. The CG will not be forkable by any simple means. It’s more than a series of contracts, so there’s no chance of a Uniswap/Sushiswap situation. It’s a network, infrastructure, keepers, market makers, users, etc. We will be pushing forward to ensure that our network cannot be overtaken. If another network attempts to overtake us, we’ll strategize and counter it.

increase in TVL through staked Rook

CG addresses this.

Produce a flywheel effect where an increase in staked Rook increases Rook demand

CG absolutely addresses this. I spent a lot of time in the lab figuring this one out, this is a big one.

Make Rook a necessity for effective MEV capture

CG lays foundation for this. We have green pastures for this, lots of discussions coming here that go beyond the products we currently have.

Give users product benefits for staking Rook

This has been a big discussion internally. We’re laying the foundation for this, and there’s a lot of opportunity for this.

This reply hardly scratches the surface of OP and this discussion. Let’s continue soon once we release the CG details so we can have cards on the table face up.

7 Likes

Thank Yung, super excited for CG. I liked your 70/20/10% concept.

KD team: Is there any roadmap for test net before releasing the main-net CG platform?

3 Likes

We’re testing with hardhat mainnet forks instead. It’s more effective and time-efficient. And also just a more true test. This ecosystem is too complex to be tested on traditional Ethereum testnets because it interacts with so much of DeFi. No point in re-deploying all of DeFi on a testnet. We’ve been testing as we go for the last few months. We’re doing end to end system tests right now as we speak while we fine-tune, address some edge cases, and make sure things are production-ready. The next step is a mainnet staging soft launch. So it’ll be tested in a live mainnet production environment as well.

4 Likes

Thank you so much for the information! I am sure myself and the rest of the community are eager to roll up their sleeves and do whatever they can to help make the coordination game and the revised rook tokenomics as robust as possible.

3 Likes